California's Regulatory Climate Has Caused Underproduction of 500,000 Homes Since 1995, Study Finds
California’s complex and uncertain governmental regulations have led to a cumulative shortfall of more than 500,000 homes and apartments since 1995, a new study found, proving that major reforms are needed to improve California’s economy and business climate, the president of the California Building Industry Association (CBIA) said recently.

The study — conducted by Bain & Company, a global business consulting firm, for the California Business Roundtable — found that the state's regulatory climate is by far the most costly, complex, and uncertain in the nation, and urged state and local officials to make widespread changes to encourage economic growth and job creation in California.

Sherman D. Harmer, Jr., a San Diego home builder and president of the 6,000-member CBIA, said the study specifically uses the problems faced by builders as an example of how anti-competitive California has become.

Harmer said the study looked at how much time it takes to get a new-home community approved and found that there is only a 6 percent probability that a California development will be approved with no modifications, while in Texas and Arizona, there is nearly a 75 percent chance of project approvals with no required modifications.

“And as any California home builder could have told you, the study found it takes a lot longer to get a project approved here. Approvals in California average 33 weeks, compared to 16 weeks in Arizona and just eight in Texas,” Harmer said.

“As the study shows, California’s business climate is the worst in the nation. And the study also shows that because of all the obstacles to new homes being built, our state has a chronic underinvestment in residential construction, with a cumulative shortfall of more than 500,000 units since 1995.”

Based on an earlier state report, Harmer said the long-term cumulative housing deficit is actually closer to 1 million homes and apartments.

“That lack of supply, coupled with an ever-growing population, is why the median home price has jumped 92% since the early 1990s and why the median-priced home in California, which cost about the same as the national average in the mid-1970s, now costs nearly $200,000 more than the national median-priced home,” Harmer said. “In addition, the lack of housing supply for our workforce is starting to severely undermine the stability of our economy and jobs.”

Harmer said enacting the study's recommendations for reform would go a long way toward easing the state's growing housing affordability crisis. The recommendations include:

• Reforming the environmental regulation process to focus on outcomes as opposed to process.
• Studying the feasibility of reengineering the California Environmental Quality Act (CEQA) process to ensure that it serves its original purpose of ensuring that environmental impacts were considered in the planning process, and mitigated where feasible. “Late hits” — CEQA lawsuits after the exhaustive reporting and review process has been completed — should be discouraged, and redundant environmental reviews should be eliminated.
• A dedicated and consistent source of long-term funding should be developed to invest in building and maintaining the state’s infrastructure, such as transportation, water, and power systems.
• Adequate housing production should be ensured to address the housing shortage.